Heartland to buy ‘home equity release’ business for $87M

Heartland to buy ‘home equity release’ business for
$87M, to raise $20M from shareholders

Feb 14
(BusinessDesk) – Heartland New Zealand, which gained a
banking licence just over a year ago, has agreed to buy a
‘home equity release’ mortgage business from buyout firm
Quadrant Private Equity for $87 million in cash and shares
and plans to raise $20 million of that from
shareholders.

Home equity release (HER) products target
the elderly, allowing them to draw against the equity in
their home. Similar products have been called reverse
mortgages and deferred settlement schemes. Typically, the
borrower doesn’t pay interest and the mortgage is settled
when they vacate.

Heartland has signed an agreement with
Seniors Money International, majority-owned by Quadrant, to
buy its HER businesses in Australia and New Zealand. The
sale is conditional and would be settled on April 1.

The
acquisition “provides Heartland with the product
capability to meet the needs of the 65-plus demographic,
which is a growing demographic and is typified by those with
the majority of their personal wealth tied up in their
primary residential dwelling,” the bank said in a
statement.

Under the deal, Heartland would acquire
Sentinel New Zealand, the nation’s biggest HER mortgage
provider with about 4,050 loans, and Australian Seniors
Finance, which has 20 percent of that market and 4,250
loans. The aggregate value is about $760 million including
$30.5 million of HER loans bought by Heartland last
December.

The acquisition will be funded with $48.3
million of cash, made up of the capital raising and existing
cash on the balance sheet, and by the issue of $38.7 million
of shares at 90 cents apiece, it said.

The capital
raising is by way of a $15 million placement and $5 million
share purchase plan and the company said it has commitments
from new and existing investors for the placement, which
would be at 88 cents a share. The shares last traded at 90
cents, up 1.1 percent on the day, having been halted for the
announcement.

Heartland said HER loans are “an ideal
response to demographic and economic realities – an aging
population with much of its wealth invested in real
estate.”

The acquisition is expected to add $8 million
to $9 million to profit in the first full year following
integration, with profit in 2015 of $42 million to $44
million, including costs associated with the purchase and
integration of the businesses.

The company is scheduled to
release its first-half results on Feb. 25 and said today it
would be a profit of about $16.5 million, putting Heartland
on track to meet its full-year forecast of $34 million to
$37
million.

The Wellington-based BusinessDesk team led by former Bloomberg Asian top editor Jonathan Underhill and Qantas Award-winning journalist and commentator Pattrick Smellie provides a daily news feed for a serious business audience.

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